Why You Should be Using Employee Referrals to Find and Hire New Talent

When seeking to hire new employees, generally, most business owners want to achieve the same goal: hire the best possible candidate while spending the least possible amount of time and money on finding and onboarding that person.

One of the best ways to do that is to implement an employee referral program. Business owners are often a bit weary of referral programs for two reasons. They are afraid that offering their employees cash for each successful referral is going to end up being really expensive. And secondly, they sometimes fear that employees are going to be referring underqualified people in hopes of making some quick money.

Research has shown that neither of those two scenarios represents a likely outcome of running a referral program. Firstly, just about every study related to employee referral programs shows that the money you’re saving on improving your recruitment, onboarding and retention programs heavily outweighs the money you are giving to staff in referral bonuses. According to this Stanford study, employees hired through referrals have higher productivity, lower turnover and lower screening costs.

This SHRM study claims that referral programs not only provide a steady stream of high caliber candidates, they also enable businesses to get in contact with so-called “passive candidates” who are much harder to reach through traditional recruiting methods.

That’s because your employees, generally speaking, will not refer just anyone. They will get in contact with friends, family and acquaintances that they trust and know are qualified for the position. Most important, employees tend to only refer people they like and have a good relationship with it.

Why is that? Because no refer bonus is worth working with someone that you have a poor relationship with otherwise. It’s as simple as that.

All in all, offering incentives to your current staff members to help you find high-quality new hires is a practice that has been proven as a credible and productive one. If you have a group of people who enjoy working with you, there’s no doubt that they will be interested in talking up your business to their family and friends and getting more great people to join the team. Your happy employees will always be your best marketing outlet when it comes to attracting and hiring new talent.

Here’s why you should start brainstorming potential employee referral program ideas if you haven’t already done so.

Employee Referrals Save You Time and Money

The facts are irrefutable. Employee referral programs can save you a lot of money. According to this study, a regular hire can cost in between $4,000-18,000 while a referral costs only about $1,000.

Moreover, referral hires can make your business a lot more money as well. This study shows that new hires that were found via referral programs tend to produce 25 percent more profit than hires sourced through other channels.

Let’s that a deeper look at how referral programs can save you money and take a look at some of the key employee referral advantages.

Recruiting

Employee referral programs can save you tons of time and money in the recruitment process. Not only are you shaving off unnecessary rounds of interviews for your HR team, you’re also letting your employees find candidates and get them to apply for the job for no cost at all.

Referrals allow HR professionals to eliminate many of the screening steps that they would normally take when getting to know a candidate and enable them to get right to the nitty-gritty; looking at resumes and seeing whether or not that person is qualified for the job.

According to this study conducted by JobVite, it takes an average of 29 days to hire a referred candidate, while it takes an average of 39 days to hire a candidate via job posting or 55 days to hire someone through a career site.

So you’re not only saving time and money by not even having to create and pay for job advertisements, you are utilizing your staff to find people through personal relationships and getting candidates who already understand your business and your company culture to an extent. Having your employees explain what it’s like working for you gives candidates a much better picture of your business and culture than any job ad can; no matter how well it’s written.

Onboarding

It makes sense that people who got the job by referral will have a much easier time acclimating themselves to the new job, which makes it easier for you and your HR team to onboard them as new hires.

As mentioned earlier, the friend or family members that referred this new hire probably already gave them a great introduction to your company and what it’s like to work with you. They know what to expect and they are already sold on the quality of your company and your culture because your employee has already done a good job of recruiting them.

It also helps a lot to have a friend in the onboarding process to talk to that isn’t specifically your new boss or someone from HR. Your new hire has that referring friend to ask questions whenever needed, which makes the process of getting them integrated into your company culture significantly faster.

Retention

Anyone running a business of their own knows that poor employee retention can cost them enormous amounts of money. Thankfully, referral programs can help you deal with this problem as well.

The aforementioned JobVite study showed that 46 percent of hires that came to you via referral will still be working at your company one year after the fact. That’s a huge difference between 33 percent of people hired through a career site and the even smaller 22 percent hired via various job boards.

Not only do those new hires tend to stay longer, so do the people who referred them – which is a hidden benefit that not many business owners anticipate when putting together a referral program.

But it’s true. Employees who refer their friends and family to join them at work have a greater chance of staying with you as well. Why? Because they are not only getting paid for every successful referral, they are also working with more and more people that they enjoy working with and consider to be more than just coworkers.

The Quality of Candidates Improves with Employee Referrals

Hiring new people through employee referrals is not only faster because the recruitment process is shorter, it’s also quicker because the quality of candidates that you get through staff referrals improves as well.

This study from The Federal Reserve shows that candidates that come to the attention of a recruiter through a referral are 40 percent more likely to get the job. This report released by talent management thought leader and expert Dr. John Sullivan shows that almost 90 percent of employers say that referrals are their best source for getting “above average candidates.”

The candidates are better for two main reasons. Firstly, they tend to be great culture fits right off the bat; which makes sense since they are being referred to you by someone who obviously enjoys working for you. Secondly, they are better candidates because they are more “relevant” candidates.

When you are creating job ads and searching for candidates through career sites, you tend to get a lot of noise in the process. Namely, you’re probably getting a lot of resumes from people who don’t really fit the role that you are looking to fill.

With employee referrals, you’re getting more relevant candidates because the person who is referring them has a good understanding of what the position entails and what kinds of candidate you are looking to hire for that specific role since they are already a part of your team.

Employee Referrals Help You Gauge Employee Satisfaction

The rate at which your employee referral program is growing and the success rate of the entire program both provide a realistic reflection of your company culture and the satisfaction and engagement of your workforce.

If you are getting tons of employee referrals and easily finding great new hires, then you can be certain that you’re doing something right when it comes to establishing and implementing a positive company culture.

On the flipside, if you’re not getting many referrals, that should definitely be a cause for concern. Why would your employees be slow to refer people even when there’s money involved? That can only mean that they are not happy working with you and that they wouldn’t recommend working at your company to any of their friends and relatives.

Therefore, the number of employee referrals you are getting is a great measuring stick for how engaged and happy your workforce is currently.

Referral programs can be a great way to increase engagement and satisfaction as well. They show your employees that you trust them to refer candidates to you, which means that you are involving them in the growth and future of your company.

If a referral is successful, not only does that staff member get a nice bonus, they get the added pride and satisfaction of knowing that they are contributing positively to the expansion of your company and workforce.